Credit risk transfer and bank competition
AbstractWe present a banking model with imperfect competition in which borrowers' access to credit is improved when banks are able to transfer credit risks. However, the market for credit risk transfer (CRT) works smoothly only if the quality of loans is public information. If the quality of loans is private information, banks have an incentive to grant unprofitable loans that are then transferred to other parties, leading to an increase in aggregate risk. Higher competition increases welfare in the presence of CRT with public information. In contrast, welfare eventually decreases for high levels of competition in the presence CRT with private information due to the expansion of unprofitable loans. This finding coincides with the decrease in credit quality observed during the late years of the credit boom preceding the subprime crisis.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Financial Intermediation.
Volume (Year): 19 (2010)
Issue (Month): 3 (July)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622875
Credit risk transfer Credit derivatives Public and private information Access to credit Bank competition;
Other versions of this item:
- Hendrik Hakenes & Isabel Schnabel, 2009. "Credit Risk Transfer and Bank Competition," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2009_33, Max Planck Institute for Research on Collective Goods.
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- George Pennacchi, .
"Loan Sales and the Cost of Bank Capital,"
Rodney L. White Center for Financial Research Working Papers
7-87, Wharton School Rodney L. White Center for Financial Research.
- George Pennacchi, . "Loan Sales and the Cost of Bank Capital," Rodney L. White Center for Financial Research Working Papers 07-87, Wharton School Rodney L. White Center for Financial Research.
- Giovanni Dell’Ariccia & Deniz Igan & Luc Laeven, 2012.
"Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 44, pages 367-384, 03.
- Dell''Ariccia, Giovanni & Igan, Deniz & Laeven, Luc, 2008. "Credit Booms and Lending Standards: Evidence From The Subprime Mortgage Market," CEPR Discussion Papers 6683, C.E.P.R. Discussion Papers.
- Dell’Ariccia, G. & Igan, D. & Laeven, L., 2009. "Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market," Discussion Paper 2009-46 S, Tilburg University, Center for Economic Research.
- Giovanni Dell'Ariccia & Luc Laeven & Deniz Igan, 2008. "Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market," IMF Working Papers 08/106, International Monetary Fund.
- Alan D. Morrison, 2005. "Credit Derivatives, Disintermediation, and Investment Decisions," The Journal of Business, University of Chicago Press, vol. 78(2), pages 621-648, March.
- Alan Morrison, 2000. "Credit Derivatives, Disintermediation and Investment Decisions," OFRC Working Papers Series 2001fe01, Oxford Financial Research Centre.
- Xavier Freixas & Jean-Charles Rochet, 2008. "Microeconomics of Banking, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062704, January.
- Keys, Benjamin J. & Mukherjee, Tanmoy & Seru, Amit & Vig, Vikrant, 2009. "Financial regulation and securitization: Evidence from subprime loans," Journal of Monetary Economics, Elsevier, vol. 56(5), pages 700-720, July.
- Wagner, Wolf & Marsh, Ian W., 2006. "Credit risk transfer and financial sector stability," Journal of Financial Stability, Elsevier, vol. 2(2), pages 173-193, June.
- Chiesa, Gabriella, 2008.
"Optimal credit risk transfer, monitored finance, and banks,"
Journal of Financial Intermediation,
Elsevier, vol. 17(4), pages 464-477, October.
- Gabriella Chiesa, 2008. "Optimal Credit Risk Transfer, Monitored Finance, and Banks," EIEF Working Papers Series 0811, Einaudi Institute for Economics and Finance (EIEF), revised Sep 2008.
- Ashcraft, Adam B. & Santos, João A.C., 2009. "Has the CDS market lowered the cost of corporate debt?," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 514-523, May.
- Jeremy C. Stein, 2002. "Information Production and Capital Allocation: Decentralized versus Hierarchical Firms," Journal of Finance, American Finance Association, vol. 57(5), pages 1891-1921, October.
- repec:fip:fedhpr:y:2008:i:may:p:193-200 is not listed on IDEAS
- Gary Gorton & George Pennacchi, 1990.
"Banks and Loan Sales: Marketing Non-Marketable Assets,"
NBER Working Papers
3551, National Bureau of Economic Research, Inc.
- Gorton, Gary B. & Pennacchi, George G., 1995. "Banks and loan sales Marketing nonmarketable assets," Journal of Monetary Economics, Elsevier, vol. 35(3), pages 389-411, June.
- Hans Degryse & Steven Ongena, 2002.
"Distance, Lending Relationships, and Competition,"
CSEF Working Papers
80, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
- Degryse, H.A. & Ongena, S., 2002. "Distance, Lending Relationships and Competition," Discussion Paper 2002-16, Tilburg University, Center for Economic Research.
- Degryse, H.A. & Ongena, S., 2003. "Distance, Lending Relationships, and Competition," Discussion Paper 2003-123, Tilburg University, Center for Economic Research.
- Christine A. Parlour & Guillaume Plantin, 2008. "Loan Sales and Relationship Banking," Journal of Finance, American Finance Association, vol. 63(3), pages 1291-1314, 06.
- Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, MIT Press, vol. 125(1), pages 307-362, February.
- Li, Zhe & Sun, Jianfei, 2011. "Bank competition, securitization and risky investment," MPRA Paper 34173, University Library of Munich, Germany.
- Silva Buston, C.F., 2013. "Active Risk Management and Banking Stability," Discussion Paper 2013-068, Tilburg University, Center for Economic Research.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.